NVDA Slips: Price Targets, Estimates Cut; Bulls Cheer Tegra, GPUs

By Tiernan Ray

Shares of chip maker Nvidia (NVDA) are down 43 cents, or 3.4%, at $12.25, surrendering earlier gains, after the company last night beatfiscal Q3 expectations but forecast this quarter’s revenue to miss consensus, as it deals with a slowing in its sales of chips for professional workstations. The company also inaugurated a dividend.

There are no upgrades or downgrades, that I can see today. Estimates and price targets are coming down in several cases, but the bulls are cheering the rapid growth last quarter of the “Tegra” application processor, and the evidence that Nvidia is making inroads in PC graphics processors against Advanced Micro Devices (AMD). Bulls still worry about the cost of staying competitive in smartphone and tablet markets:

Steven Eliscu, UBS: Reiterates a Buy rating and a $16.50 price target. “We are encouraged by the reviews of the Microsoft Surface RT, which we believe can be a category NVIDIA maintains a strong position given its PC pedigree and with its next gen Tegra (4) on the cusp of launching. With F4Q guidance in line with prior estimates and a strategy focused on growth segments of the computing market that have high competitive barriers, we maintain our Buy rating.” Eliscu raised his Q4 revenue estimate to $1.105 billion a prior $1.1 billion while cutting EPS by a penny, to 24 cents. He raised his fiscal 2014 revenue estimate to $4.46 billion from $4.43 billion previously, while maintaining his 94-cent estimate.

Bobby Burleson, Canaccord Genuity: Reiterates a Buy rating while cutting his price target from $20 to $16. “We believe the company is on track to reach its Tegra target of $540 million, despite HTC’s market share loss, as Tegra revenues have been buoyed by strong tablet builds (Surface and Nexus 7). With an integrated LTE modem/apps processor on the horizon, NVDA should significantly grow its smartphone TAM in C2013, while share gains against AMD and a ramp for Romley workstations should allow NVDA GPUs to continue to outperform the PC vertical.” Burleson cut this quarter’s revenue estimate from $1.25 billion to $1.1 billion, and cut his EPS view to 24 cents from 32 cents. He cut his fiscal 2014 revenue and profit estimates to $4.54 billion and 90 cents from a prior $5.04 billion and $1.21.

Daniel Berenbaum, MKM Partners: Reiterates a Neutral rating, and a $14 “fair value estimate,” calling the report “more good than bad,” though “not enough to move us off the sidelines.” “NVDA is clearly gaining market share against AMD in GPU, PSB is showing signs of life, and Tegra finally seems to be ramping in more products. However, investment requirements are still growing (particularly in mobile), and (as with other fabless companies) we are concerned over the ability to continue cost reduction at advanced technology nodes. Thematically we could argue that NVDA is well-positioned for the ultimate move of graphics processing power to the cloud, but growth is coming from increasingly competitive markets (mobile apps processing in particular). Net/net, we see just north of $1 earnings power (including stock-based compensation) over the next few years, making it tough to justify putting new money to work.” Berenbaum maintains a fiscal 2014 revenue estimate of $4.8 billion, while trimming his EPS estimate from $1.18 to $1.16. For 2015, he sees $5 billion in revenue and $1.19 per share.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.